Corporate results: Engro Foods’ profits grow three-fold

Forward momentum attributable to volumetric growth, record margins, other income.

KARACHI:

Engro Foods – Engro Corporation’s cash cow – posted a profit of Rs2.595 billion for 2012, up 191%, led by the dairy and beverages segment. Engro’s star performer witnessed a staggering three-fold increase in its earnings.

The board of directors did not announce any dividend payout for the period with results.

On a quarter-to-quarter sequential basis, Engro Foods saw its profit climb 102% to Rs977 million compared to the corresponding quarter of the previous year.

Revenues climbed 35% to touch the Rs40-billion mark from Rs29.859 billion a year earlier, according to a copy of the results sent to the Karachi Stock Exchange (KSE).

Higher prices and volumetric growth coupled with padding from other income resulted in a stellar full-year profit, said a BMA Capital research note.

The performance was above expectations, mainly due to the fact that gross margins for the final quarter clocked in at 28.1%, the highest in the company’s history, compared to an average of 24.8% in the preceding three quarters.

Moreover, other income rose 79% to Rs0.382 billion supporting the volumetric growth. On a quarterly basis other income grew 97% to Rs0.14 billion. Higher prices and contribution from other income took net margins to the all time high level of 9.1% in the final quarter against an average 5.5% during the first nine months of 2012.

The company’s financial expenses meanwhile declined by 14% as compared to the previous year to Rs1.1 billion, indicating lower debt-financed capital expenditure spending. Although helped by the low interest rates, this may nonetheless be a cause of concern, given the Engro Foods’ ambitious growth plans.

According to a press statement, the company’s directors believe the strong product mix along with diversification remained key elements that contributed to positive performance throughout 2012.

Sectoral analysis

Growth in ultra-high temperature processing milk segment was driven by tea creamers where Tarang maintained is leadership. Omung Lassi – the new entrant in the market – continued to reflect strong promise of growth, according to the board.

The dairy and beverages segment recorded revenue of Rs37.37 billion and a profit of Rs0.478 billion. The segment thus contributed 93% to Engro Foods total revenues of Rs40.17 billion.

The ice cream and frozen desserts segment, however, was not so lucky, as it showed a volumetric contraction of 3%. Despite this, the division posted sales of Rs2.8 billion and a loss of Rs0.41 billion.

Outlook

Going forward, the company’s dairy segment will continue to be the main revenue driver, specifically the company’s strong domination in the packaged milk through its flagship Olpers brand, whereas growing market share in tea creamers through its Tarang brand will support bottom-line growth.

Six out of Engro Foods’ seven products – Olper’s, Olper’s Lite, Olfrute, O’more, Omung, Omung Lassi and Tarang – are dairy-related.

Analyst expect Engro Foods to stay in lead in terms of market share in packaged milk and tea creamers, which was estimated to be 55% and 75% respectively. Engro Foods itself boasts of over five million consumers that use its products nationwide daily.

Engro Foods announced mid-way through 2012 that it will spend Rs8.7 billion in expansion during the year. Since the exact realisation of investment is unknown as of yet, analysts and investors are waiting for an update regarding the management’s plants for the company, which will set the future trajectory of Engro Foods.

Company’s stock gained Rs3.83 to close at Rs100.82 during yesterday’s trading session at the KSE.

Published in The Express Tribune, January 25^th, 2013.

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